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kennedy corp is thinking in investing in a new location the managers think that opening a...

kennedy corp is thinking in investing in a new location the managers think that opening a new store will cost 1170. they expect the following years profits 250 in year one, 370 in year 2, in year 3 650, AND 600 IN YEAR 4. THE CURRENT wacc IS 8% WHAT IS THE npV OF THIS INVESTMENT?

Solutions

Expert Solution

Given,

Cost = 1170

Year 1 profit = 250

Year 2 profit = 370

Year 3 profit = 650

Year 4 profit = 600

WACC = 8% or 0.08

Solution :-

NPV

= [year 1 profit (1 + WACC)] + [year 2 profit (1 + WACC)2] + [year 3 profit (1 + WACC)3] + [year 4 profit (1 + WACC)4] - cost

= [250 (1 + 0.08)] + [370 (1 + 0.08)2] + [650 (1 + 0.08)3] + [600 (1 + 0.08)4] - 1170

= [250 (1.08)] + [370 (1.08)2] + [650 (1.08)3] + [600 (1.08)4] - 1170

= [250 (1.08)] + [370 (1.1664)] + [650 (1.259712)] + [600 (1.36048896)] - 1170

= 231.48148148 + 317.2153635 + 515.99095666 + 441.017911677 - 1170

= 1505.71 - 1170

= 335.71

So, NPV of this investment is 335.71

jeff jeffy answered 1 year ago
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